FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 0-12807
PHOTOCOMM, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0411983
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7681 East Gray Road, Scottsdale, Arizona 85260
(Address of principal executive offices) (Zip Code)
(602) 948-8003
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
There were 16,245,044 shares of common stock, $0.10 par value,
outstanding as of November 4, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOTOCOMM, INC.
CONSOLIDATED INCOME STATEMENT
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
------------------------ ------------------------
Net sales $8,568,587 $8,469,209 $22,803,841 $18,656,997
Cost of sales 6,328,807 6,799,705 17,849,439 14,339,980
---------- ---------- ----------- -----------
Gross profit 2,239,780 1,669,504 4,954,402 4,317,017
Selling, general and
administrative expenses 1,721,241 1,348,813 5,519,894 3,583,996
---------- ---------- ----------- -----------
Income (loss) from
operations 518,539 320,691 (565,492) 733,021
Other income (expense):
Interest expense (60,168) (48,360) (83,307) (94,378)
Other income, net 20,097 9,388 22,107 32,776
---------- ---------- ----------- -----------
Income(loss) before taxes 478,468 281,719 (626,692) 671,419
Income tax benefit --- 350,000 --- 350,000
---------- ---------- ----------- -----------
Net income(loss) 478,468 631,719 (626,692) 1,021,419
Preferred stock dividend (13,132) (14,624) (40,783) (41,214)
---------- ---------- ----------- -----------
Net income(loss)
applicable to common
shareholders $465,336 $617,095 ($667,475) $980,205
========== ========== =========== ===========
Net income(loss) per share $0.03 $0.04 ($0.04) $0.07
========== ========== =========== ===========
Weighted average common
shares outstanding 16,325,805 14,834,250 16,392,028 14,781,524
========== ========== =========== ===========
See Notes to Consolidated Financial Statements.
PHOTOCOMM, INC.
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1997 1996
ASSETS ------------- ------------
Current assets:
Cash and cash equivalents $ 905,775 $ 1,377,898
Accounts receivable, net 5,919,524 4,557,102
Inventories 6,637,798 4,490,784
Other current assets 162,886 184,904
----------- -----------
Total current assets 13,625,983 10,610,688
Properties at cost less accumulated
depreciation of $1,691,936 in 1997
and $1,418,346 in 1996 2,754,831 2,551,616
Deferred tax asset 350,000 350,000
Other assets, net 2,031,511 1,774,457
----------- -----------
Total assets $18,762,325 $15,286,761
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,928,386 $ 1,695,266
Short-term debt 1,700,000 ---
Accrued expenses 247,945 1,341,811
Current installments of long-term debt 81,787 556,153
----------- -----------
Total current liabilities 4,958,118 3,593,230
Long-term debt, less current installments 2,170,529 134,490
----------- -----------
Total liabilities 7,128,647 3,727,720
----------- -----------
Shareholders' equity:
Preferred stock, $0.01 par value,
5,000,000 shares authorized and no
shares issued or outstanding --- ---
Series A 12% convertible preferred
stock, 125,000 shares authorized,
38,972 shares issued and outstanding 39 39
Series AA 11% convertible preferred
stock, 200,000 shares authorized,
44,156 abd 52,565 shares issued and
outstanding 44 53
Common stock, $0.10 par value, 25,000,000
shares authorized and 16,245,044 and
16,151,444 shares issued and
outstanding, respectively 1,624,504 1,615,144
Additional paid-in capital 16,150,383 15,458,405
Accumulated deficit (6,141,292) (5,514,600)
----------- -----------
Total shareholders' equity 11,633,678 11,559,041
----------- -----------
Total liabilities and shareholders'
equity $18,762,325 $15,286,761
=========== ===========
See Notes to Consolidated Financial Statements.
PHOTOCOMM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended
September 30,
1997 1996
-------------------------
Cash flows from operating activities:
Net income (loss) ($ 626,692) $1,021,419
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 395,191 306,957
Non-cash settlement charge 650,000 ---
Change in accounts receivable (1,362,422) (3,725,242)
Change in inventories (2,147,014) (291,637)
Change in accounts payable and
accrued expenses 139,254 1,823,815
Change in other current assets 22,018 (112,110)
---------- ----------
Net cash used in operating activities (2,929,665) (976,798)
Cash flows used in investing activities:
Purchase of property and equipment (476,805) (820,291)
Purchase of other assets (378,655) (1,399,368)
---------- ----------
Net cash used in investing activities (855,460) (2,219,659)
Cash flows provided by financing activities:
Proceeds from issuance of debt 3,802,250 1,399,099
Repayments of debt (540,577) (103,338)
Proceeds from issuance of common
stock 78,980 1,507,727
Cash dividends on preferred stock (27,651) (41,214)
---------- ----------
Net cash provided by financing
activities 3,313,002 2,762,274
Net decrease in cash and cash
equivalents (472,123) (434,183)
Cash and cash equivalents at beginning
of year 1,377,898 485,412
---------- ----------
Cash and cash equivalents at end of
period $905,775 $51,229
========== ==========
See Notes to Consolidated Financial Statements.
PHOTOCOMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Fiscal Year End
On February 2, 1997, the Board of Directors elected to change the
fiscal year end of Photocomm, Inc. and its subsidiaries
("Photocomm" or the "Company") from August 31 to December 31. As
a result, the Company now reports interim financial information
on a calendar quarterly basis. Certain reclassifications have
been made in the 1996 financial statements to conform to the
classifications used in 1997.
Note 2. Legal Proceedings
On July 22, 1997, the Company reached a settlement of the pending
arbitration proceedings with former executives Robert Kauffman
and Thomas LaVoy.
In connection with the settlement, the Company paid severance,
benefits and attorney's fees. To facilitate the settlement, two
of the Company's directors purchased all outstanding stock
options from Mr. Kauffman. The Company retired 100,000 stock
options held by Mr. LaVoy. In addition to the approximate
$1,200,000 reserve previously announced for severance
under the employment agreements, the settlement agreements
resulted in an additional aggregate one-time charge of $800,000,
of which $650,000 was non-cash. As an additional provision of
the agreement, Mr. Kauffman resigned as a director of the
Company.
As previously provided in the employment agreement, the Company's
majority shareholder, ACX Technologies, Inc. (NYSE: ACX)
purchased 500,000 shares of common stock and common stock
equivalents from Mr. Kauffman. ACX also made a $2,000,000 non-
recourse loan to Mr. Kauffman, secured by his remaining 1 million
shares of common stock of the Company.
Note 3. New Accounting Standards
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information", was
issued in June 1997. This statement establishes standards for
the way public business enterprises report information about
operating segments. It also establishes standards for related
disclosure about products and services, geographical areas, and
major customers. This statement is effective for the Company's
financial statements for the year ended December 31, 1998 and the
adoption of this standard is not expected to have a material
effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", was issued in June 1997. The statement
establishes standards for reporting and display of comprehensive
income in financial statements. This statement is effective for
the Company's financial statements for the year ended December
31, 1998 and the adoption of this standard is not expected to
have a material effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 128, "Earnings
per Share", was issued in February 1997. The adoption of this
new accounting standard, which is required on December 31, 1997,
will result in the restatement of earnings per share for all
periods presented. Based on management's estimates, the adoption
of this standard is not expected to have a material effect on the
Company's financial statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business Overview
Photocomm is engaged in manufacturing and marketing solar and
solar hybrid electric systems in the United States and abroad.
The Company operates in two major markets, distribution and
industrial, which are outlined below.
Distribution
For the distribution markets, applications include remote
electrification of rural homes, recreational vehicles and boats,
water pumping, and lighting, which the Company distributes
through dealer networks and retail catalogs. Currently,
distribution accounts for approximately half of the Company's
sales and is largely domestic, however, management believes there
is opportunity for expanding and developing international
markets. Distribution sales are relatively steady throughout the
year, although there are seasonal swings in this largely domestic
segment resulting in increased levels of sales in the second and
third quarters. As international growth continues, the Company
expects the seasonality to diminish.
International distribution is currently located in two regional
centers. The Central and South American markets are serviced
through an office in Florida, and on October 1, 1996 the Company
opened an Australia office through a wholly-owned subsidiary,
Photocomm Pty., Ltd. Although these offices are primarily
focused on distribution sales, the Company also plans to pursue
future growth opportunities in industrial applications worldwide.
Industrial Business
Industrial sales are focused primarily on power supply solutions
for remote applications within the telecommunications and the oil
and gas communications and exploration markets. Although sales
to these markets are typically not seasonal in nature, the
Company has participated in large projects within these markets
by developing relationships with local carriers and larger
original equipment manufacturers ("OEMs"). Historically, it has
not been possible to predict this activity quarter to quarter.
However, as these relationships continue to develop and new OEM
customer relationships are built, it is the Company's strategy to
develop a more consistent level of this business. Additionally,
the Company expects sales in this market to continue to grow as
the Company develops new domestic customers and identifies
applications internationally. An increase in the Company's
international presence was recently accomplished through the
addition of contracts obtained from Integrated Power Corporation
("IPC").
On November 13, 1997, the Company announced the signing of a
memorandum of understanding to acquire the assets and business of
Utility Power Group ("UPG"), headquartered in Chatsworth,
California. UPG, with 1996 revenues of approximately $6 million,
manufactures, integrates and installs utility grid interactive
solar systems for the industrial telecommunications market.
Results of Operations
Consolidated net sales for the three months ended September 30,
1997 were $8,568,587, an increase of $99,378, or 1.2%, as
compared to the 1996 similar period. The increase in sales is
attributable to the IPC contracts, increased volume in the
industrial oil and gas communications businesses, and increased
volume in domestic distribution. Partially offsetting these
increases were sales declines in industrial telecommunications
and international distribution related to the timing of certain
large contracts that were realized in the third quarter of 1996.
For the third quarter of 1997, sales in the distribution market
accounted for approximately 48% of total sales, with the
remainder from the industrial markets. For the comparable 1996
quarter, sales to the distribution market accounted for
approximately 55% of total sales, with the remainder from the
industrial markets.
Consolidated net sales for the nine months ended September 30,
1997 were $22,803,841, an increase of $4,146,844, or 22.2%, as
compared to the 1996 similar period. The increase in sales is
attributable to increased volume in both domestic and
international distribution and increased volume in the industrial
business primarily related to the IPC contracts. Partially
offsetting these increases was a decline in the industrial
telecommunications business, a result of the timing of certain
large contracts that were realized in the third quarter of 1996.
For both nine month periods ended September 30, 1997 and
September 30, 1996, sales to the distribution market accounted
for approximately 54% of sales, with the remainder from the
industrial markets.
Gross margin (gross profit divided by net sales) was 26.1% for
the third quarter of 1997, compared to 19.7% for the third
quarter of 1996. The increase in the gross margin for the
quarter is primarily attributable to the change in sales mix to a
greater percent of sales from the industrial markets,
specifically related to the IPC contracts, and strong summer
season sales in the distribution markets. For the nine months
ended September 30, 1997, gross margin was 21.7% as compared to
23.1% for the 1996 similar period. The decrease in the gross
margin is primarily a result of lower volume in the industrial
markets and the resulting under absorption of fixed costs during
the second quarter of 1997.
Operating income was $518,539 for the third quarter of 1997,
compared to $320,691 for the third quarter of 1996. Operating
income as a percent of sales increased to 6.1% for the third
quarter of 1997 from 3.8% for the third quarter of 1996. The
increase in operating income was a result of the increase in
gross margin as described above, offset in part by an increase in
selling, general and administrative expenses due to costs
associated with streamlining the Company's operations. The nine
month period ended September 30, 1997 had an operating loss of
$565,492, compared to operating income of $733,021 for the nine
month period ended September 30, 1996. The decrease in operating
income is primarily a result of a second quarter compensation
charge of $800,000 associated with severance agreements with
former executives of the Company and the decrease in gross margin
as discussed above. The severance agreements are discussed more
extensively in Part II, Item 1, of this Quarterly Report.
The Company has not recognized any income tax benefit or expense
for the three and nine month periods ended September 30, 1997.
Realization of the net operating losses generated during 1997 and
the remaining operating losses generated in prior periods is
dependent on the generation of future taxable income and is
limited by ownership changes. At this time management has not
determined that it is more likely than not that the entire
deferred tax asset will be realized and has provided a valuation
allowance against the Company's deferred tax asset. The
realizability of the deferred tax asset will be monitored on a
quarterly basis.
During the three and nine month periods ended September 30, 1996,
the Company recognized a $350,000 tax benefit from the
establishment of a deferred tax asset through an adjustment in
the valuation allowance. This decrease in the valuation
allowance resulted primarily from the utilization of net
operating loss carryforwards during the 1996 third quarter and
the release of a portion of the deferred tax asset valuation
allowances based upon the Company's re-evaluation of the
realizability of the remaining net operating loss carryforwards.
Liquidity and Capital Resources
The Company's liquidity is generated from internal and external
sources and is used to fund short-term working capital needs and
capital expenditures. Internally generated liquidity is measured
by net cash from operations and working capital. At September
30, 1997, the Company's working capital was $8,667,865 with a
current ratio of 2.7 to 1. At December 31, 1996, the Company's
working capital was $7,017,458 with a current ratio of 3.0 to 1.
The Company considers its working capital sufficient to meet its
anticipated short-term requirements.
Cash used in operating activities for the nine months ended
September 30, 1997 was $2,929,665. The Company's operating cash
uses primarily consisted of an increase in inventory of
$2,147,014 and an increase in accounts receivable of $1,362,422.
Cash used in investing activities primarily consisted of
expenditures for computer equipment, manufacturing and
engineering equipment, and the IPC contracts.
Cash generated from financing activities primarily consists of
$3,700,000 of proceeds from a $4,000,000 line of credit provided
by majority shareholder, ACX Technologies, Inc. The significant
terms of this agreement include an interest rate of 1% less than
the monthly prime rate, a three year term, and interest to be
paid quarterly. Offsetting the above proceeds were repayments of
debt in the amount of $540,577.
Although no assurances are possible, the Company believes that
its future operating cash flows and available line of credit from
the majority shareholder, ACX Technologies, Inc., will provide
adequate funding for current obligations, projected operations
and planned expansion for the next twelve months and the
foreseeable future.
Forward-Looking Statements
The statements made in this report that are not historical facts
contain forward-looking information that involves risks and
uncertainties. Forward-looking statements include, but are not
limited to, statements of the Company's beliefs, expectations and
strategies. Important factors that may cause actual results to
differ from such forward-looking statements include, but are not
limited to, market demand and acceptance of the Company's
products, the impact of competitive technologies, products and
services, risks associated with international operations
including currency fluctuations, litigation, seasonality, claims
to which the Company may be a party, availability of critical
materials or supply, the Company's ability to manage planned
expansion of its business and to integrate acquisitions of other
businesses, the effect of economic and business conditions and
other risk detailed from time to time in the Company's filings
with the Securities and Exchange Commission.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-
KSB for the year ended August 31, 1996. The accompanying
financial statements have not been examined by independent
accountants in accordance with generally accepted auditing
standards, but in the opinion of the Company, such financial
statements include all adjustments necessary to summarize fairly
the Company's interim financial position and results of
operations. All adjustments made to the interim financial
statements presented are of a normal recurring nature. The
results of operations for the three month and nine month periods
ended September 30, 1997 may not be indicative of results that
may be expected for the year ending December 31, 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 22, 1997, the Company reached a settlement of the pending
arbitration proceedings with former executives Robert Kauffman
and Thomas LaVoy.
In connection with the settlement, the Company paid severance,
benefits and attorney's fees. To facilitate the settlement, two
of the Company's directors purchased all outstanding stock
options from Mr. Kauffman. The Company retired 100,000 stock
options held by Mr. LaVoy. In addition to the approximate
$1,200,000 reserve previously announced for severance
under the employment agreements, the settlement agreements
resulted in an additional aggregate one-time charge of $800,000,
of which $650,000 was non-cash. As an additional provision of
the agreement, Mr. Kauffman resigned as a director of the
Company.
As previously provided in the employment agreement, the Company's
majority shareholder, ACX Technologies, Inc. (NYSE: ACX)
purchased 500,000 shares of common stock and common stock
equivalents from Mr. Kauffman. ACX also made a $2,000,000 non-
recourse loan to Mr. Kauffman, secured by his remaining 1 million
shares of common stock of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Document Description
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: November 13, 1997 By /s/Jeffrey C. Brines
-----------------------------
Jeffrey C. Brines
(Chief Financial Officer)
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<PERIOD-END> SEP-30-1997
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